Thanks the Guardian
Thanks the Guardian

Here is a magnificent visualisation of the Euro Debt Crisis from Bloomberg (for email subscribers, check it out at this link, or directly at

The argument is essentially still:

  1. The debt crisis demonstrates quite clearly that you can’t have monetary union without fiscal union #UnitedStatesofEurope
  2. But there’s no political will to bring that about
  3. Therefore, the Euro is pretty much doomed

Which, look, to be fair, I don’t think that’s strictly true. The Eurozone can have fiscal accord without necessarily having fiscal union. I mean – even the USA doesn’t have full fiscal union. It has federal and state spending programmes, like it has federal and state taxes. But when Detroit stumbles around bankrupting itself, no one looks at the union and says “Yikes – will Michigan leave the USA?”*
*Agreed – that’s not a perfect parallel. Mainly because I’m sure that the people of Michigan probably identify as American first, Michiganian (Michiganese?) second. Unlike the Greeks, who are definitively Greek, and more generally European as an afterthought.

So it’s not an absolute given that the Eurozone needs fiscal union. It could possibly (probably?) get by with fiscal guidelines – which is exactly what the European Fiscal Compact has been putting in place since early 2012.


That’s only the theory. In practice, even fiscal accord may be too much of a short-term ask.

If you take Greece as an example: the Greeks have historically relied on inflation to finance their government spending programs. And that type of fiscal-monetary policy combo is going to give you a citizenry that don’t believe in paying taxes:

  • firstly, because the government is not going to care so much about tax collection when it’s so much easier to dip into the monetary cookie jar; and
  • secondly, because inflationary tax is an abuse of government power, and why hand more money over to a government that is already happily expropriating purchasing power straight from your bank account?

It’s also going to give you a citizenry that will take as much as they can in fiscal benefits – because, well, they feel like they’re paying for it in purchasing power expropriated directly from their bank accounts.

That particular sentiment suggests that the fiscal genie has long since flown the bottle. And to get it to go back in – that is, to re-establish a cultural respect for paying your taxes, and to re-establish belief in a less-corruptible government that is mostly dedicated to healthy fiscal spending – that’s a long road. It’s not impossible (after all, Germany managed a paradigm shift in the wake of its hyperinflation) – but it’s unlikely to happen before the next Greek election rolls around.

Which brings me to this key point: Greece has no good short-term options, and no politically expedient longer-term options.

And that makes me very concerned for the game of brinkmanship that Yanis Varoufakis, Alexis Tsipras and the rest of Syriza are playing with the Eurozone.

Because let me tell you how I would look at it, if I were in their position.

Greece’s Options, From A Game Theory Perspective

Greek Brinkmanship
Greek Brinkmanship…

My concern is this:

  1. The Greek public want two conflicting things to happen: they want the austerity to stop, and they want to stay in the Eurozone.
  2. If the austerity does not stop, then Syriza will have failed in its electoral promises, and it will lose the next election.
  3. There is no outcome under which a Syriza backtrack on its anti-austerity agenda ends well for Syriza – even a partial backtrack is likely to be problematic.
  4. If the Eurozone rejects any new reforms and withholds bailout funds, thereby forcing Greece out of the Eurozone by default, then Syriza may lose the next election. But it also might not – because it won’t be Syriza’s “fault” that Greece left the Eurozone. Syriza can continue to maintain that Germany forced Greece out by being unreasonable. And in the interim, Syriza will be able to take control over the newly-returned money-printing press in order to push through short term relief measures. Even if this outcome will be bad for Greece – it could be very good for Syriza. And Mr Tsipras could anoint himself the new Victor Maduro of Southern Europe.
  5. The only outcome under which the Greeks get to both exit austerity and stay in the Eurozone requires the Eurozone to accept new reforms offered by Syriza. In which case, Syriza will continue to win elections.

Does that all sound a bit brash and daring?

Well, when you look at how the negotiations have proceeded up to this point – I’m not seeing a whole lot of reticence, exactly. It’s all brash and bravado and frankly, it almost seems like a taunt.

I think that my bigger concern is that Syriza has already decided that its best case scenario is having Greece kicked out of the Eurozone by a disgruntled cabal of Euro-area finance ministers. Because that opens up their political options in a way that no Eurozone negotiation could…

How’s that for a conspiracy theory?

"I'm actually playing Risk. Tee hee." Thanks Business Insider
“Chess? No I’m actually playing Risk. Tee hee.” Thanks Business Insider

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at